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Secret paper ruled out bank guarantee

A document drawn up by the Department of Finance setting out the options in the event of a bank collapse in February 2008 ruled out a blanket bank guarantee as a desirable solution.

Marked 'secret' and dated February 8, 2008 -- more than eight months before the wide-ranging Irish guarantee was put in place -- the Department of Finance paper sets out the options facing the Government in the event of a bank collapse.

The three options considered are: an orchestrated 'take-over' by another bank with government support; examinership; or nationalisation "as a last resort".

"The three primary options should ideally be available for consideration in advance of any financial stability issue coming into the public domain," it says.

"As a matter of public policy to protect the interests of taxpayers, any requirement to provide open-ended/legally-binding State guarantees which would expose the Exchequer to the risk of very significant costs are not regarded as part of the toolkit for successful crisis management and resolution."

The paper also states that legal advice on these issues had been sought from the Attorney General's office.

It says that a State guarantee "could only be justified in circumstances that otherwise the entire financial system is at risk of collapse".

The paper concludes that the Department of Finance's primary objective is to "safeguard public/international confidence in the stability of the Irish financial system" and that it is in the interests of the public that the situation is solved "before it enters the public domain".

It is believed that the secret document was part of a much larger hoard of documents which was supplied to the Public Accounts Committee and has only now found its way into the public domain.

Under the heading of 'Proposed Next Steps' it says: 'Policy issues to be submitted for ministerial consideration/ approval.'

However, the fact that the Department of Finance was planning in February 2008 in the event of a bank collapse raises the question of why Brian Cowen (who was finance minister at the time) and his senior officials were so ill-prepared for the September 28 crisis and why a full bank guarantee which included Anglo Irish Bank was given.

Mr Cowen and other ministers have said that the first inkling they had of the possibility of a bank collapse was the St Patrick's Day 'massacre' of Anglo Irish Bank shares.

Sunday Independent